Foreclosure process follows a sequence of events and the 2nd stage of a foreclosure is known as the pre-foreclosure and is characterized with homeowner’s missed payments, penalty fees for late payment and the options available to him/her at this level include to find away to catch up with his monthly payments, reach an arrangement an alternative to a foreclosure such as a loan modification, short sale or a deed in lieu of foreclosure or sell the property and pay the outstanding debt. Therefore it is the time period when the homeowner has at least 3 months of missed payments and the lender has to file the notice of default or a lawsuit but the foreclosure sale has not taken place yet.
How it works
The pre-foreclosure can last for 90 days to 10 months or more and ends with the foreclosure date, hence passes quickly therefore compelling the borrower to act fast and sell the property before the lender can take over the control of the property. The parties involved in a pre-foreclosure sale are the homeowner and the buyer nonetheless the involvement of the lender cannot be ignored because he or she has to approve the buyer’s offer.
Benefits of the pre-foreclosure sale
To the borrower- he/she is able to do away with monthly payments that they can no longer afford to keep paying which will increase their ability to repay their other obligations.
To the buyer- he/she will be able to acquire a property with at a lower and favorable price as compared to the market value and also allows him/her ample time to inspect the property than what he could have or is not likely at an auction.
To the mortgagee or lender- he/she is able to recover what was owed to them and replacement of the previous home owner with a more financially stable debtor.
Demerits of buying at pre-foreclosure sale
One is the time aspect as it can be time consuming as compared to buying a traditional; the buying process can only be closed upon the approval of the mortgagee in question; existing liens and any unpaid property taxes are to be paid by the new owner; pre-foreclosed properties may have sustained some critical damages costly to correct making most of them unviable especially to buyers who purchase to renovate and make a quick resell of the property for profit because of diminished profit margins.
Where to start if you are considering buying at pre-foreclosure stage
The sad fact about the pre-foreclosure is that it does not necessarily mean that there will be a sale therefore you need to be careful when handling financially troubled and delinquent homeowners so as to avoid upsetting them. To find homes in pre-foreclosure you can read through the default listing and once you have spotted the home you desire, you can start by contacting the homeowner directly and to better improve your chances of buying the property you may want to engage a realtor to assist you throughout the buying process.